Forex: Where have all EUR/USD bulls gone?

Yesterday, we were discussing the constructive outlook on the European-shared currency, after an impressive 2013 rally. Today, and with the EUR/USD hammered 2 cents from Thursday's high at 1.3575 to a 2-wee low at 1.3474, the stance is far more dubious, to say the least.

The Euro sharp sell-off comes after the ECB struck a dovish tone in its statement and press conference. Without explicitly making reference to neither dangerous high levels in the Euro nor any potential intervention, the rhetoric he used suggests tighter “monitoring”. Downside risks for inflation and potential growth trouble on weaker exports were the main takeaways.

According to Danske Bank economists: "It is becoming a master of verbal intervention as it managed to dampen recent de facto tightening without taking any action – much as was the case with the OMT programme, which has so far managed to lower Spanish and Italian bond yields without buying a single bond."

Kathy Lien, co-founder at BK Asset Management, thinks the rally still has legs to develop, despite the Draghi-inspired sell-off, saying that fundamentals remain intact, mentioning as example "the tail risks have receded, the Eurozone economy is still recovering and capital is returning to the region." Kathy tips dip buyers awaiting if the losses accelerate to the point of reaching levels around 1.3270.

If history is any indication, Kathy notes that "back when ECB President Trichet called the move in the euro excessive, the pair recovered quickly before topping out months later."

An institution making favourable comments on the Euro is Danske Bank, saying that "in the near term, the risk is on the downside for EUR/USD as EUR rates come somewhat lower. In the medium term, however, we believe that euro setbacks will prove temporary and we expect EUR/USD to gradually trend higher towards 1.40 in coming months."

According to Fan Yang, independent analyst at FXstreet.com: "This dip is still within the context of the recent rally seen in the daily chart. The next support is around 1.3270, a previous resistance/support pivot. The bearish outlook is held until a break of a couple of key rising trendlines, possibly requiring a break below the 1.3170 pivot. Without this break, a push back above 1.35 revives the bullish outlook.

Post the bloodbath in the pair, as Chris Capre, founder at 2ndskies, notes: "The pair has formed 3 inside bars back to back, or an 'iii pattern'. My bias now is south if it can clear the support level. Should this fail, then 1.3300 is up on deck. Any corrective pullbacks towards 1.3463 are also opportunities to sell on a rally."